TaxTMI 
TaxTMI 
2020 (1) TMI 276
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....tice inviting tender and letter of award. In May, 2016 appellant initiated Arbitration proceedings against the corporate debtor for recovery of its dues under LOA. Subsequently, the corporate debtor was admitted under CIRP under section 7 on 22.12.2017. The appellant submitted its claim in Form-B before the IRP/RP.Due to failure of CIRP, liquidation proceedings were initiated and liquidator was appointed, who published public notice of liquidation process on 13.10.2018. The appellant filed its claim before the liquidator in Form-C. The appellant claimed statutory charge/lien on the plant and machinery erected by the appellant at the project site and on unused material both in form B and C. On 23.11.2018 liquidator sought additional information and clarifications in respect of claim filed by the appellant which were duly replied on 29.11.2018.The liquidator vide its order dated 31.12.2018 which was communicated to the appellant on 04.01.2019 provisionally admitted claim at Rs. 290,01,85,395/- as against amount claimed at Rs. 664,98,37,221 / -. The appellant was also treated as unsecured creditor. The reasons for reduction in amount claimed were given that arbitration proceedings wer....
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....al arguments before this Tribunal on 11 .04.2019, however, just one day before i.e. 10.04.2019, the liquidator initiated the process of auction of all the assets of the corporate debtor including the plant and machinery lying at the Project site. Ld. Counsel submitted that the liquidator as a custodian held the assets of the corporate debtor in trust for the benefit of all the creditors including the appellant and the liquidator was duty bound to disclose these facts to the Tribunal. It was also pleaded that the liquidator initiated the auction process in spite of knowing fully well that no auction could have been initiated or pursued till the Tribunal had taken final view in respect of it's claim. 5) Ld.Counsel drew our attention to the order of the liquidator dated 03.06.2019 wherein the liquidator had observed that the appellant/ BHEL neither challenged the category nor the order of priority as decided by the liquidator in its appeal and contended that this was factually incorrect for the reasons that in CA(IB) No. 149/KB/2019, a specific plea was taken that the appellant had not accepted its categorisation as an unsecured Operational Creditor. Hence, there was no need to....
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....rrelevant and had no bearing on the present claim. It was further contended that rejection of the claim of the appellant by the liquidator on the ground that there existed no agreement in regard to lien/ charge between the appellant and the corporate debtor deserved to be set aside. 7) Ld.Counsel thereafter contended that provisions of Sale of Goods Act, 1930 and Transfer of Property Act, 1882 were not contrary to the provisions of IBC, 2016 and therefore, such provisions were to be read in harmonious manner and consequently, provisions of section 238 of IBC, 2016 were not applicable. For this proposition, he relied two decisions of the Hon'ble Supreme Court in the case of Central Bank of India Vs State of Kerala & others (2009) 4 Supreme Court Cases 94 and on the decision in the case of ICICI Bank Ltd. Vs SIDCO leathers Ltd. & Ors (2006) 10 Supreme Court Cases 452. Ld. Counsel also placed reliance on the decision of the Honble Madras High Court in the case of K.Saradambal Vs Jagannathan & brothers as reported in (1972) 42 Company Cases 359 for the proposition that appellant as holder of lien/statutory charge was a secured creditor and as an unpaid vendor had a right of re-s....
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....97 containing special conditions of the contract of NIT published to state that possession was not given. It was also vehemently argued that the claims made by the liquidator regarding plant and machinery being part of its fixed assets register and, charge of banks were not substantiated by the learned Liquidator by bringing cogent materials/ evidence on record. He further pleaded that if the events were analysed in chronological order then conduct of the Liquidator could not be said to be and bonafide. 10) Ld. Counsel for the Respondent No.2, the auction purchaser, submitted that in C.A. (IB)No.792/KB/2019, auction purchaser had not been made a party,hence, any decision in regard to C.A.(IB) No.792/KB/2019 should not impact him adversely.However, considering the fact that decision in this C.A.(IB)No.792/KB/2019 could impact him, as he was a bonafide purchaser and had committed itself to the auction process by paying the required sale consideration, hence, it was incumbent upon him to make his submissions in response to various contentions raised by the parties to this appeal. It was again emphasised that the auction purchaser was not a party, hence, it was not bound by any orde....
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....d earlier there being no registration of any lien/ charge as contemplated under section 77(3) of the Companies Act,2013, the claim of the appellant, BHEL was liable to be disregarded. Thereafter, he referred to the provisions Of Section 238 of IBC, 2016 to contend that provision of Sale of Goods Act, 1930 were not applicable as the possession of the goods/material/equipments supplied by appellant had already been vested in the Corporate Debtor. Similarly, provisions of section 55(4)(b) of Transfer of Property Act, 1882 were also not applicable in regard to erected plant and machinery.The learned senior counsel further pleaded that in case of bonafide purchaser having no notice of any claim or encumbrance or liability or any other defect title in goods, provision of Section 55(4) of the Transfer of Property Act, 1882 were not applicable at all because such bonafide purchaser had been excluded from the application of the provisions of this section. 13) The Ld. Senior Counsel further pleaded that arbitration proceedings were initiated by the appellant wherein only money claim had been made and no claim of lien/ charge was made, hence, for this reason also such claim was not maintai....
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....ult only into over sale proceeds/ right to receive payments as opposed to any rights over the underlying property. For this proposition, he relied on the following judicial decisions:- 1. Raj Lingam Vs. Somanna (died) & Others AIR (1967) AP 7 @ pRs. 5-6 dated March 26, 965, 2. Dattatreya Shankar Mote & Others Vs. Anand Chintaman Datar & others (1974) 2 SCC 799 @ pRs. 14,17 and 24 dated October 3, 1974. 16) The Ld. Senior Counsel, thereafter, referred to provisions of section 35(1) (b) and 35(1)(f) of IBC,2016 and contended that the liquidator was duty bound to take the possession of the assets of the corporate debtor i.e. company in liquidation and to sell the same and, therefore, sale executed by liquidator could not be stopped or cancelled on the ground that appellant had any purported lien in respect of any such goods. 17) The Ld. Senior Counsel further pleaded that the the contract was awarded for the work of design, engineering, manufacturing, testing, supply, transportation etc. and therefore it was an instance Turn-key project of establishing a Thermal Power Project. Therefore, provisions of Sales of Goods Act, 1930 were not applicable. Further,the ap....
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....urse of hearing a specific query was posed by the Bench as to whether in view of provisions of section 238 of IBC,2016, such provisions of Sales of Goods Act, 1930 and Transfer of Property Act, 1882 would be applicable or not. As per the learned counsel, these provisions are not contrary to any provisions of the IBC,2016, hence, such provisions were to be read in harmonious manner and, consequently, provisions of these Acts would be applicable to decide the claim of the appellant. This proposition leads us to search into the scheme and specific provisions of IBC,2016 and Regulations made thereunder to find out whether there exist some specific provisions which can be applied to determine the status of appellant i.e., whether such creditor is a secured creditor or unsecured creditor. This exercise is required because IBC, 2016 is a complete Code in itself and provisions of this Code prevail over the provisions of any other laws/instrument, which are contrary/ inconsistent to the specific provisions of IBC,2016 as prescribed in section 238 of IBC, 2016 or not in consonance with the overall objects and scheme of the IBC,2016. It is also a settled judicial proposition that if any speci....
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....angement securing payment or performance of any obligation of any person". The crucial part is inclusion of creation or/provision of interest through agreement or arrangement between the parties. 26) The definition of term "security interest" uses different terms which have been defined in other Sections of the IBC,2016, hence, we would glance through them in brief manner. The term "property" is defined in section 3(27) of IBC, 2016 and is reproduced as under.- "Property" includes money, goods, actionable claims, land and every description of property situated in India or outside India and every description of interest including present or future or vested or contingent interest arising out of, Or incidental to, property;" 27) It is evident that this definition is inclusive. Notably, this includes goods and property of every description situated in India or outside as well as every description of interest, whether present or future or contingent arising out of, or incidental to property. 28) In the definition of security interest, creation or provision is through a transaction. The term "transaction" has been defined in section 3(33) of the IBC, 2016, which is rep....
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.... that provisions of Sales of Goods Act, 1930 or Transfer of Property Act, 1882 relied on by the appellant are inconsistent or contrary to specific provisions Of IBC, 2016, hence, not applicable. The inconsistency is apparent because on same set of facts two different conclusions are resulting under different statutes. The principle of harmonious construction is applied when there is no such inconsistency and the result is in furtherance to the object to the Act or Code whereunder proceedings are being adjudicated or decided. Accordingly, we reject the contention of the appellant that the provisions of these Acts are in harmony with the object of the Code. 31) Having stated so, now, we have to look into the agreement/ arrangements as entered into by and between the appellant and the corporate debtor in writing to find out whether any security interest in favour of appellant has been created or provided for realisation of it's dues in the event of default by the corporate debtor in payment thereof or not. This position leads to find out whether there is a written agreement/arrangement between the parties to this effect. In this regard it is noted that no formal contract has be....
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....ions of NIT wherein matters relating to insurance as well as possession/custody/ supervision have been dealt with but there exists no Clause as regard to lien/charge in respect of unpaid consideration. We have gone through the general conditions of the contract as well as special condition of the contract and in such conditions also there does not exist any provision for creation of lien/charge in favour of the appellant in respect of goods supplied and used in erection of the plant and machinery. This fact also been highlighted by the liquidator in its order dated 03.06.2019 that the LOA between the parties does not stipulate any term which grants appellant a right as unpaid seller lien. 34) It is further noted that in the order dated 3rd June, 2019, Liquidator has referred to a decision of the Hon'ble Madras High Court in the case of Bharat Heavy Electricals Ltd. and others Vs Amnachalam Sugar Milts Ltd. and others dated 12.04. 2011 wherein Clause 3.11.1 of contract between the parties thereto has been referred to by the Hon'ble High Court. This Clause is reproduced by us as under for the purpose of depicting that had this clause been there in the letter of award/NIT o....
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....er" section 3(34) of the IBC, 2016.1n addition to these terms, the term "charge" has been prescribed in section 3(4) of the IBC,2016, which reads as under :- "Charge" means an interest or lien created on the property or assets of any person or any of its undertakings or both, as the case may be, as security and includes a mortgage". 38) This definition is identical to the definition of this term given in Section 2(16) of the Companies Act,2013. However, as per provisions of section 77(1) of the Companies Act, 2013 a duty has been cast upon every company to register a charge with Registrar of the Companies which has been created by the company. However, no such requirement has been prescribed in IBC, 2016 either in the aforesaid definition or any other provision or any Regulations made thereunder i.e. Regulation 21 of IBBI (Liquidation Process) Regulations, 2016 or Regulation 20 of IBBI (Voluntary Liquidation Process) Regulations, 2016 as these Regulations only prescribe as to how the security interest could be proved. It is also evident that charge registered under Section 77 of the Companies Act, 2013 is only one of the modes as per these Regulations to prove security ....
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.... Asset Reconstruction and Security Interest of India; or (d) Other relevant documents which adequately establish the security interest. 40) As compared to Regulation 21 of IBBI (Liquidation Process) Regulations, 2016, a noticeable difference exists by virtue of Clause(d) of the aforesaid Regulation 20 which provides that other relevant documents can adequately establish the security interest. As stated earlier that Regulation 21 of IBBI (Liquidation Process) Regulations, 2016 is directory and discretionary in a sense that it uses the word "may", hence, to implement the scheme of the IBC,2016 an inference can be drawn that other relevant documents can also to be used to establish existence of a created security interest under liquidation proceedings ordered on failure of CIRP. 41) Even though we have already held that provisions of Sales of Goods Act, 1930 are not applicable in view of specific provisions of IBC, 2016. There has been contentious issue of possession as to who is having the possession of the goods and materials supplied by BHEL including the material which has been consumed in erection of plant. The Liquidator in its order dated 03.06.2019 has ....
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....stody at site and are lying there entirely at the risk of BHEL and in the absence of any preservation, the condition of the materials is deteriorating. VPL reiterates that BHEL remains solely and fully responsible for the condition and safety of equipment/ materials, as well as insurance thereof, in BHEL's custody, including the materials that have already been erected at site, till such time the same is completely erected & commissioned". Thus, this claim of the liquidator is rejected but it has got no bearing on our decision that the appellant does not have any security interest in the absence of any specific Clause in NIT as well as LOA. 44) It was also pleaded by the appellant that liquidator though observed that decision in regard to lien could be decided by a Court and in spite of that the liquidator proceeded to decide this issue on his own, hence, such action of the liquidator was not valid. In our view, this plea has got no merit as per the provisions of IBC,2016 and Regulations made thereunder-liquidator is a quasi judicial authority unlike resolution professional, who has to work under supervision and decision making authority of COC. The liquidator under Secti....
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....05.2019 virtually amounted to contempt. Such action created strong doubts on the bonafides of the liquidator as hearing on 29.05.2019 was an empty formality for the reason that subsequent to issue of sale certificate no decision in favour of the applicant could have been possible at all. It was also prayed that there existed no circumstances which could justify such action of liquidator. II. The next line of argument was based upon the fact that valuation was arbitrary, improper and full of inconsistency, hence, the entire process appeared to be an outcome of collusive working. To elaborate on this point, the learned counsel submitted a chart and made different claims. For the sake of ready reference, the chart along with observations of applicant thereon is reproduced hereunder:- During CIRP During Liquidation Asset/ Valuer Adroit Valuation United Surveyors Mr. Anit Goel Mr. Partha P. Chottopadhyay Land 33,13,79,583 26,92,21,000 39,64,09,415 44,62,38,000 Building 8,99,56,226 6,75,30,000 5,84,18,596 2,06,19,000 Total (L & B) 42,13,35,809 33,67,51,000 48,48,28,011 46,68,57,000 &nb....
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....f the prescribed rate for the sale of scrap metal, which was published by the joint plant committee constituted by Government of India and this fact alone was sufficient to cancel the auction. To support this contention, he referred to Annexure-A of Rejoinder to Respondent No.1 dated 21.08.2019 page no. 20 which contained the market price as on 15.06.2019. According to the learned counsel, the value per metric ton should have been actually realised at Rs. 33000 per metric ton as against Rs. 9000 per metric ton now received. 49) The learned counsel also submitted that the material supplied was not only lying in the enclosures the area allocated to it but it was lying on different locations and the liquidator had given a wrong affidavit that material belonging to the applicant was lying only in the allocated area to it. Hence, the valuation could not be said to be correct as it was not clear as to what material had been included and what material had been excluded. The learned counsel, thereafter, contended that furniture and fixtures and office equipments which were valued at Rs. 24.46 lakhs and Rs. 784 lakhs whereas reserve price was fixed at Rs. 12 lakhs and 6 lakhs, and no bas....
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.... process to adjudicating authority from time to time read with relevant Regulations 5, 13 & 15 of IBBI (Liquidation Process) Regulations, 2016. It was also submitted that such reports were not submitted merely for record keeping. The learned counsel further emphasized that the adjudicating authority had an implied obligation to examine the correctness and adequacy of valuation reports as held by the Hon'ble Supreme Court in the case of Union Bank of India Vs Official Liquidator (2000) 5 SCC 274. 53) Thereafter, the learned counsel made following points as well:- a. Liquidator had not filed any material nor there was any evidence on record to show that what quantity of plant and machinery were still lying nor was there any clarity on the quantity and identification of the material which was included or not included in the valuation. b. It was also not clear as to what had been sold and what had not been sold. c. The auction purchaser had even lifted the material belonging to BHEL but no F.I.R. or other corrective actions were taken by liquidator to prevent happening of such event. At this stage, the liquidator submitted that F.I.R. had been filed. ....
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....auction purchaser only. The learned counsel drew our attention to the financial documents of the M/S Pavani Construction Work Pvt. Ltd. to show that it was incorporated only in 2016 .1n this regard, he further drew our attention to financial statements/ details. 54) The learned counsel appearing on behalf of the liquidator initiated his arguments by stating that the application had been filed with malafide intention and just to stall the proceedings. In this regard, he submitted that Rules and Regulations as per the provisions of law were followed in letter and spirit and no violations occurred. For such claim, he referred to second progress report filed by the liquidator on 16.04.2019 wherein it was mentioned that liquidator conducted first meeting of stakeholders 18.01.2019 and second meeting was conducted on 13.03.2019 to discuss the progress of liquidation process and future course of action to be adopted. 55) The learned counsel for the liquidator referred to Annexure-A containing the minutes of the second consultation meeting dated 13.03. 2019 wherein issue of valuation of assets was discussed in detail. He referred pages 29 to 33 and 51 to 55 of the progress report to ....
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....uation except the applicant, hence, this fact by itself was sufficient to indicate that applicant had no bonafide intent and such application was filed just to stall the process. 57) Thereafter, he contended that the applicant had filed an arbitration wherein only the money claim had been made and issue of its lien/charge was not a subject matter and, therefore, such claim could not be raised now. The learned counsel also referred to the order of liquidator dated 31.12.2018 where applicant had been shown as unsecured creditor and on this basis, it was pleaded that how the unsecured creditor could raise such claim. 58) As regard to the contentions of the applicant that the liquidator had violated the order/ directions of this authority, which were given in its order dated 10.05.2019, it was reiterated that no violation of whatsoever nature had been done. It was strenuously argued that liquidator had complied with the directions of Tribunal by passing a reasoned order. 59) As regard to the validity of bids, the learned counsel submitted that the eligibility criteria for auction was deposit of 10% of the bid amount and on that basis bidders were to be finalised. No other crit....
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....f the auction purchaser. 63) The learned counsel, thereafter, submitted that Notice Inviting Tender provided that possession had to remain with the applicant/ appellant although the title had passed for limited purpose of execution of contract/project. It was further pleaded that during the course of CIRP, if the possession had been handed over because of operation of law that by itself did not mean that the appellant/ applicant did not have right as unpaid seller on the basis of possession till that time or it got extinguished thereafter as such condition was not prescribed Section 46/47 Of the Sale of Goods Act, 1930. 64) As regard to the delay and applicant being termed as sleepy, the learned counsel submitted that since beginning all actions were taken in time and, therefore, it was not correct to say that there was a case of belated action. In this regard, he further emphasised on the fact that the BHEL filed an appeal against the provisional admission of claim order immediately which was pending for disposal and wherein such issued had been raised and, therefore, this claim was made by the auction purchaser just to secure it's interest and were devoid of merits. ....
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.....2018 after CIRP failed to result into any positive response/ feasible resolution plan. The appellant filed their claim as Operational Creditors before the Liquidator wherein security interest was also claimed. The Liquidator vide provisional admission of claim dated 31.12.2018 finalised the order of priority and category of appellant as an Unsecured Creditor to be governed by provisions of section of IBC, 2016. The learned Liquidator refused to accept the claim of interest on unpaid amount since the matter was under arbitration. The appellant filed an Appeal under section 42 of the IBC, 2016 in January,2019.The Tribunal passed an order on 10.05.2019 in CP(IB) 149/KB/2019 in CP (IB) No.574/KB/2017.It has been pleaded by the learned Liquidator that this Tribunal required the Liquidator for passing reasoned order for rejecting or allowing the claim of the applicant. The Liquidator after calling for an information from the appellant passed a "Reasoned Order" on 03.06.2019 maintaining the status of appellant as an " Unsecured Operational Creditors". Since, the thrust of the argument of the learned Liquidator is that he was required only to pass a reasoned order hence we consider it nec....
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....f this authority. In this case, the Liquidator is acting in dual capacity, (i) that he is in control of the assets of the corporate debtor who is under liquidation and (ii) he is sitting as a quasi judicial authority to determine the claims of the creditors. In such situation, it becomes too essential for him to give reasons for his decision about admitting or rejecting the claim. As already pointed, the Liquidator did not produce copy of the order. But in his reply para-7, he stated that, the claim was indeed filed by the appellant before the Liquidator, however, as the amount claimed therein were subject to adjudication by Arbitral Tribunal. At this moment, it cannot be ascertained whether corporate debtor failed to make payment to the appellant". 9. It appears from the above contentions of the Liquidator that he did not at all determine the claim. He just ignored the claim only on the ground that the dispute about the some parts of the claim is going on before the Arbitrator. It is not expected from the quasi-judicial authority, like the Liquidator for not considering the claim of the appellant. In fact, this authority, during course of hearing, has suggested the Liquid....
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....uired to pass a reasoned order. In this regard, it is pertinent to reproduce relevant various pleas made by Ld. Liquidator in it's reply in CA No. 792/KB/2019 as under:- Para19,page-33-xii.That it is important to state that the hearing which took place in C.A. (IB) No. 149/ KB/ 2019 in C.P. (IB) No. 574/KB/2917 was only with regard to claim admittance of BHEL and it is wrong to suggest that the subject matter in the said applicant was Plant & Machinery. That it is clear from the Order dated 10.05.2019 that the order was passed with a direction to the Ld. Liquidator for passing a detailed order. Hence. it is apt to state that there was no direction with regard to the Plant and Machinery and as the same was not even the subject matter of dispute in the said proceedings. the fact of E-Auction was not specifically brought to the notice of the Hon'ble Tribunal. Para 19,page-34-xiv. That at the cost of repetition, it is apt to state that the Order dated 10.05.2019 was passed with a direction to Liquidator to pass a reasoned order. That the same direction was complied with by the Ld. Liquidator and in that regard a detailed order was passed by the Liquidator prov....
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....ge on the Plant & Machinery tying at the site. Page 40,para-30- That the contents of Para 2(D) are admitted to the extent that the Appeal being C.A.No. 149/ KB/ 2019 was filed by the Appellant. However, it is specifically denied that the appeal was allowed in toto and the matter was remitted back to the Liquidator. It is respectfully stated that the operation of the said order was limited to the extent that the Liquidator was directed to pass a detailed order and no order of stay against the liquidation process Was passed by the Hon'ble Tribunal. Therefore, it is wrong to state that the liquidator ought to have refrained from continuing the liquidation process. 70) In this regard, the submissions made by liquidator in Progress Reports are also reproduced. (i) In the 3rd Progress Report dated 12.07.2019 filed on 15.07. 2019 in the Index at serial no. 12 the particulars have been stated as "copy of reasoned order dated 03.06.2019 assed the liquidator". At page 20 of the said progress report following observations have been made under the head developments in any material litigation by or against the Corporate Debtor":- "On the basis of above verifica....
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....r:- While verifying and issuing such Certificate, the Liquidator had however finalised the "Category' and "order of priority under Section 53(1)" of BHEL. BHEL was categorised as an "unsecured operational creditor" and its order of priority was finalised at "Section 53(1)(F)" being "any remaining debts and dues". In exercise of its rights under Section 42 Of the Code, BHEL preferred an Appeal against the Liquidator's decision of provisionally admitting the principal claim and rejecting the interest claim before the Hon'ble NCLT. It is stated that BHEL neither challenged the category nor the order of priority as decided by the Liquidator in its appeal". (iv) In reply affidavit dated 28.08. 2019 in CA (IB) No. 792/KB/2019, it has been mentioned that in para 18 at page 8 as under:- "Thereafter, Ld Liquidator passed a "reasoned order" dated 03.06.2019 re-affirming therein that BHEL is an "unsecured operational creditor" of the Corporate Debtor. The Ld. Liquidator in the said detailed order observed and reiterated its earlier stand that BHEL has no lien/ statutory charge over the property lying at the site and the Ld Liquidator has every r....
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....ch situations a conservative/ cautious approach adopted. We make it amply clear that we are not attaching any motives rather attempting to find out structural issues, if any which could be a contributory factor apart from one's own way of functioning. This prompts us to have look at the scheme of the IBC,2016 and position of the liquidator. As per the objects of the IBC, 2016, liquidation is not envisaged in the normal course rather even in the course of liquidation, the emphasis is on sale of corporate debtor as a going concern. In spite of this objective, data show that instances of liquidations are much more than the resolutions in the three years of operations of IBC, 2016. There is a serious need to re-look at the mechanism as provided in the IBC,2016. In this factual background, we find that one of the central problems identified on the poor implementation of bankruptcy systems in India has been the liquidator as mentioned in the Vishwanathan Committee Report, 2015 and therefore, it was recommended that the efficient completion of liquidation fully rested on the shoulders of the liquidator. The liquidator has been made responsible for orderly completion of liquidation and....
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....ot binding on the liquidator. Further the records such consultation shall be made available to all other Stakeholders not to so consulted in a manner specified by the Board. This takes us to IBBI (Liquidation Process) Regulations, 2016. As per regulation 2(1)(k) "Stakeholders" means persons entitled to distribution of proceeds under section 53 of IBC,2016. As per Regulation 5 of IBBI (Liquidation Process), Regulations, 2016, liquidator is required to prepare reports and submit the same to the Adjudicating Authority. For the sake of ready reference, this Regulation is reproduced as under :- 5. Reporting. (1) The liquidator shall prepare and submit : (a) a preliminary report: (b) an asset memorandum; (c) progress report(s); (d) sale report(s); (e) minutes of consultation with stakeholders;and (f) the final report prior to dissolution To the Adjudicating Authority in the manner specified under these Regulations. (2) The liquidator shall preserve a physical as well as electronic copy of the reports and minutes referred to in sub-regulation (1) for eight years after the dissolution of the corporate....
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....engthening . 75) It is further noteworthy that liquidator is a quasi judicial authority as against RP who is merely the administrative authority. As per section 40 of the IBC, 2016 the Liquidator can adjudicate upon claims made by the creditors whereas in case of CIRP this power exists only with the COC. 76) The duties which the liquidator has to perform have been prescribed in Section 35 and Section 36 of IBC,2016. Significant duties are to protect and preserve the assets and properties of the corporate debtor and to carry on the business of the corporate debtor for its beneficial liquidation. Apart from this, he has to sell the immovable and moveable properties by public auction or private contract in case the corporate debtor or its business cannot be disposed of as a going concern. The liquidator is obliged to verify the claims of all creditors, consolidate such claims and determine the value of such claims. The liquidator has been given specific power under section 40 of the IBC,2016 to admit or reject claims against which an appeal may be preferred before the Adjudicating Authority under section 42 of the IBC,2016. For formation of liquidation estate, a specific provisi....
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.... furtherance of the object of IBC, 2016 and also to maintain the dignity of the Insolvency Profession. Such mechanism also goes to depict that the responsibilities by the liquidator have to be discharged in a thoroughly professional manner. 80) One can understand that this mechanism is being provided based upon global practices, our earlier experiences or practices or considering the fact that if liquidation is delayed, the value of liquidation estate may erode very sharply but if subsequent events/empirical data show that this mechanism has resulted into more liquidations than resolutions or other unintended consequences then corrective measures be taken as soon as possible within the framework of existing Law and Regulations or if required necessary modifications be carried out to attain the core objectives of IBC,2016, in spite of fact there may exist mechanism to fix the accountability for lapses but it is advisable to have preventive measures/ safeguards in place as compared to curative action so that economic value is maximised and mud slinging is avoided. 81) In the present case, the liquidator treated the applicant as unsecured creditor in his provisional order dated ....
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....te being an officer of the court as the Liquidator and having a professional duty to make proper disclosures, suppressed this material fact from the Hon'ble Tribunal with the ulterior motive of receiving wrongful gains in complete violation of the law and professional ethics. 4.20- On the face of it, Respondent No. 1's omission is intentional and deliberate and amounts to a gross misconduct and smears of a larger conspiracy between the Respondent No. 1 and the alleged successful auctioneer. It is pertinent to note here that suppression of material facts by the Respondent no. 1, apart from being unethical is contemptuous in nature. On this ground alone, the whole auction process deserves to be declared illegal and set aside with directions to the Respondents to restore the status quo ante. 4.21- Pursuant to the final hearing on 11. 04.2019, this Hon'ble Tribunal was pleased to reserve the matter for orders. This Tribunal was pleased to allow the said Appeal vide order dated 10.05.2019 and remanded the matter to Respondent No. I for passing an appropriate reasoned order as per law within thirty days. Needless to state that with the Appeal being allowed, ....
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.... 21.05.2019. Applicant's security personnel at Site handed over a copy of a Certificate of Sale dated 20.05.2019' issued by Respondent No. 1 wherein it was stated that Respondent No. 1 has purportedly sold the 'Plant and Machinery' at the Project Site to Respondent No.2. It is pertinent to note that Schedule-I to the Certificate of Sale dated 20.05.2019 includes various Plant & Machinery over which the Applicant has a lien and charge. Further, the said unknown persons have since removed large quantities of Plant & Machinery from the Project Site. 4.25- On further enquiry, the Applicant learnt that Respondent No. 1 had issued an auction notice dated 10.04.2019 in a local Hindi newspaper for an auction of the 'Plant & Machinery', amongst others, on 'as is where is basis' to be conducted on 01.05.2019. Shockingly, Respondent No. 1 did not deem it fit to disclose this fact to this Hon'ble Tribunal or to the Applicant at the time of final arguments before this Hon'ble Tribunal on 11. 04.2019. Upon becoming aware of the actions of Respondent No. I, the Applicant issued a notice dated 28.05.2019 to the Respondents calling upon them to inter....
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....ssed by the Hon'ble NCLT". 84)A bare perusal of the above shows that, in sum and substance, the applicant is aggrieved by the functioning and approach of the liquidator during the liquidation process. The applicant has not only referred to the flouting of legal provisions but has also doubted the integrity of the liquidator. During the course of pleadings also averments to this effect have been made. Thus,the question that arises from this how this grievance can be addressed within the framework of IBC. 2016. 85) For the moment, we leave it here as it is and proceed to discuss other aspects as we will deal with this later on. 86) The applicant has challenged the valuation not only on account of improper method being adopted whereby the value has been arrived at on substantially lower side by allowing an exceptional depreciation as against normal depreciation although the plant has not been operated and fully erected. In this regard, it is noted that approaches of two different valuers also vary. Secondly, items valued and sold also appear to be different, hence, a case of lesser revenue. It is also noted that some of the items have been sold below the valuation amount.....
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....he credential even for depositing of 10% EMD. 89) There appears to be claims and counter claims as regard to what has been valued and what has not been valued. There also exist dispute as to what has been sold or what has not been sold. There is also a claim by the applicant that goods belonging to the applicant had been wrongly lifted by the auction purchaser. However, it has been refuted by auction purchaser as well as the liquidator. 90) The applicant has prayed for cancellation of auction and restitution. The primary request is for return of its goods while prayer for any other reliefs has also been made. Although, having regard to the above discussion, this should be a outcome but in the facts and circumstances of the case and applicable legal position, the moot question is can it really be done. 91)In this regard, we need to see the ground realities. This plant was installed way back in 2010-13. The site is spread over large area of land. The contract was abandoned in between. The plant and machinery erected has remained in open for almost 7 years. The auction of the plant and machinery, equipments/ goods have been done as scrap. The plant and machinery has already b....
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....e course of due diligence process, the Auction Purchaser has not been made aware of the fact of petition/claim made by the applicant as regard to its security interest, hence, as per settled judicial principles, a bonafide purchaser cannot be made to suffer. Further, the auction purchaser had no say/role in valuation of said goods/ materials, hence, the Auction Purchaser on the face of it cannot be said to have earned unlawful gains from auction. 95) Thus, for these reasons, the auction sale cannot be cancelled at this stage.That leaves us with the question of restitution. 96) The determination of this issue leads us to an interesting question i.e. whether Tribunal has got jurisdiction/ authority to grant the relief by way of restitution? To answer this, we need to look into the scheme and provisions of the IBC, 2016. The IBC,2016 has prescribed roles of it's different constituents. The roles of COC, RP and liquidator have already been discussed herein before, hence, not repeated. The jurisdiction of Adjudicating Authority has been prescribed in various specific sections. For example under section 19(2) of the IBC,2016, the Adjudicating Authority can direct the suspended ....
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....nd IBBI have been explicitly designed. There is no overlapping or ambiguity. IBBI is regulator who operates under the superintendence of Central Government the Adjudicating Authority cannot give any directions to IBBI. The Adjudicating Authority cannot perform the functions which have been assigned to IBBI. For example, disciplinary proceedings against resolution professional can be taken only by IBBI. As can be seen from the various pleas made in this I.A., which have been reproduced herein before, the applicant is aggrieved by the functioning of the liquidator. For redressal of this, specific mechanism exists in section 217 & 218 IBC, 2016. Further, Regulation 11 of IBBI (Insolvency Professionals) Regulations, 2016 prescribes the procedure as to how the Disciplinary Committee would function and report to the Board in such matters. The IBBI is empowered to impose penalty on Insolvency professional as per Section 220(3) of the IBC,2016. Section 2206), 220(5) and 220(6) of the IBC,2016 provide for determination of unlawful gain earned by a person, to order disgorgement of an amount equivalent to such unlawful gain and to provide restitution to the person who suffered the loss from t....